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Old Europes New Shine
As European Union leaders meet in London to wrangle over European Union budgets and the Anglo-Saxon versus the French model, global investors have already voted and have been handsomely rewarded.
Many American investors seem to have written off Europe as a quaint low-growth low-return destination. This sort of attitude has caused them to miss some great opportunities. Lets look at a few.
Ireland was always seen as on the fringe of Europe. Its population of 4 million people (the United Kingdom is 15 times larger) was always viewed as a bit of a laggard. Into the 1960s, citizens had to pay for secondary education, and as late as 1987, Irish gross domestic product was only 69% of the average of the nations that eventually formed the EU. The unemployment rate was 17%.
Suddenly, its economy took off. Average GDP growth rates in the 1990s were 6.9%, and by 2003, Irish GDP was 136% of the EU average with an unemployment rate of 4%. How can we account for this remarkable turnaround As usual, it is not due to one event, but rather to a confluence of policies, timing and action.
In the late 1980s, a grand deal was struck: Labor would moderate its demands, freer trade was pursued and corporate tax rates were brought down to zero for multinationals investing in Ireland. Education was also noticeably improved for its relatively youthful population, especially in the technology area.
Within a short time, Ireland became the low-cost production base in Europe, and the money flowed in. Foreign direct investment was the key, and now 1,100 multinationals many in the tech sector established manufacturing and R&D operations in Ireland. More than 25% of all American investment in Europe goes to Ireland and Dell is its largest exporter. This, in turn, led to an export boom. The stronger economy also sharply increased labor participation, especially among Irish women.
The resultant rise of Dublin as a booming city and a major financial hub also led to a tourist boom with more than 6 million annual visitors. Instead of talented Irish workers migrating to the U.S. for opportunities, they were coming home in droves.
You can see how every action spins off and helps build sustained growth and momentum. Every action led to another in a virtuous cycle, but the key ingredient for success was undoubtedly massive inflows of capital capital from foreign direct investment, from EU subsidies, from exports, from stronger domestic capital markets and from migration. Good pro-growth market policies together with sizable amounts of capital can lead to economic miracles.
The challenge for Ireland now is to maintain its competitiveness and momentum in the face of greater competition and higher costs plus a potential property bubble. Congestion in Dublin, which represents 33% of the population and 40% of GDP, is a bottleneck on growth.
The New Ireland Fund is a closed-end fund that has done quite well. Over the last ten years, it has an average annual return of 13%, and during the last year, it was up more than 35%. It trades at a 10% discount to its net asset value and is managed by the Bank of Ireland
Next, lets take a quick look at the host of this weeks EU summit, the U.K., which has benefited greatly from its openness to the world. London has grown in the last 20 years by 800,000 to reach almost 7.5 million. There are 300 languages spoken in London, and the number of nationalities is approaching 100. The U.K. is one of only three European countries, together with Sweden and Ireland, that have given workers from Eastern Europe free access to its labor markets. Since last May, 175,000 have accepted the invitation. The iShares MSCI United Kingdom Index is up 12% over the last 12 months.
While the American discussion of the flat tax doesnt seem to go any further than the local Starbucks, many of the countries of Eastern Europe have already adopted one. The flat tax, combined with Eastern Europes low cost structure, access to new EU markets, and a strong work ethic have led to a surge in growth. Because Eastern European stock markets are thinly traded, why not use the iShares MSCI Austria Index as a proxy Austria serves as a gateway to Eastern Europe and functions as its financial, transportation and logistical hub. Austria has also cut its corporate tax rate from 34% to 25%. The Austrian ETF is up 40% over the last 12 months.
Germanys GDP growth has been anemic, but the iShares MSCI Germany Index is up 16% during the past year. The reason, firms such as ABB and Siemens are not waiting for the politicians to tell them what to do. They are searching the globe for opportunities and winning big contracts.
Even the broadest European indices are doing well. The iShares MSCI EMU Index is up over 15%, and the iShares S&P Europe 350 Index is up almost 16% during the past year. By comparison, the S&P 500 is up a little better than 6%.
Dont buy into the medias no-growth, no-opportunity label for Europe. It has some of the worlds best multinationals and controls 40% of the worlds wealth. Especially as U.S. markets continue to churn without making any forward progress, a new investment in Old Europe could be a wise move for your portfolio.
For more information go to or call 877-221-1496.
Carl Delfeld is head of the global advisory firm Chartwell Partners and editor of the the Asia-Pacific Growth newsletter. He served on the executive board of the Asian Development Bank and is the author of The New Global Investor. For more information go to or call 877-221-1496.
How To Find A Good Financial Planner
How do we find financial planners, or estate planners to help execute in our best interests Its a great question. The standard reply one would get from a talking head on CNBC is Find a licensed Financial planner, and then get at least three references, then make sure that you see if he is working towards his own goals and not yours, etc etc Thats a fine canned response, but whats it really mean Not much.
As you know, we believe that the person most suited for your personal finances is You. No one cares about you, like you. So, premise one is that you actually care about whats going on and want to take the action steps necessary to achieve your gols. What I find is that too many people tend to think that estate planning is too overboard for their abilities and they pass along the responsibility to someone else. That isnt particularly an attractive way to go. Here is what I suggest.
The hardest part of finding good financial planning is to find a person who really knows his stuff but has the time to deal with you on a personal level. In other words consider your tax preparer. Once a year you trot into his or her office with a box load of papers, you wade through it for a couple hours and youre done. You probably wont see them again for a year. With a financial planner this is a major no no. An awful lot can change in the course of a year and you want the ability to contact this person and discuss changes in tax laws, stock directions, allocations, real estate, etc. on at least a monthly basis. So, along with finding a skilled person, one needs to find one who wont blow you off when you call. But more importantly, not only shouldnt he blow you off, he has to listen to your concerns and make movements based on your feelings too.
How do you find a person like that Well its not easy, but its possible. The first thing to do is this, contact the person who handles your house and or life insurance. No, you dont want the salesman, you want the brokerage owner. For instance, my friends house is insured by State Farm and his local broker is a wonderful guy whos been in the insurance and money business for 28 years. Even if you dont know your broker personally, he has a reason to listen to your question and help you. See, you pay this man through your premiums. He will try and help you if he can. So, start there. A common line of thought would be Hey Joe, Im looking for a financial planner to help me get things set up for my retirement, help with my taxes, and help me build a secure environment. I dont want some pushy guy who is going to try and sell me all sorts of services, I want to pay someone for his knowledge. Do you know of anyone that sounds right for the job Will Joe know someone who can help Probably, financial planners contact insurance companies all the time trying to increase business.
Your life insurance provider is also a good place to start, although so many life insurance companies have financial advisory services that are nothing more than offices run by 20 somethings that are reading the old company script. This is obvously not acceptable, but in some cases your insurance man may be doubling as a CPA, or a financial planner on the side. If so, and you like him, start asking him the questions. Your boss is generally a good place to ask too. Dont be embarrassed, in fact, keep your head up. If your employer is successful, chances are hes gone through the same questions you are going through. Find out who he uses. We have found that the human resources department of mid sized companies are often a treasure trove of info like this. You can bet that if your HR person is nailing down 150 grand a year, hes talked to many planners both on the corporate level and personal level. Ask him. First he will be shocked because most people dont think about using him for that info, but then he will take a certain pride in feeling that you find him important enough to ask.
If Joe is a square guy, he will give you a couple names that will help you. Its your job to weed through them and see if any of them fit the bill. Whats the most important thing to ask your new prospect I can sum it up in one paragraph. Ask him if he thinks its okay to stay the course, suffer losses now, because in the long run you will win If he gives you that line of crap, say Sorry no thanks and move on. If you ask him how can I maximize my returns, while limiting my risks, and avoiding the tax man to the best of my ability, and he replies, I like to stay liquid, and safe. I take risks when appropriate, but only when we can maximize the return and minimize the tax liability this is a guy you want to meet. The economy changes, the stock market changes, and your planner should be flexible. Make sure you tell this person that you want to stay involved, and that a personal relationship is paramount to success. If hes not willing to field phone calls at 9 pm after youve had an usettling day, then move on. Pay him well for his services, but make it known that you will be involved and you will want interaction.
That doesnt mean call him ten times a day. That means that if you see something changing, you want to talk about it and the ramifications of it. Suppose you have several homes and you start seeing property values dipping in your area because of poor manufacturing employment. Wed certainly be on the phone asking him when should we sell one and then what should we do with the proceeds. He might have suggestions you havent thought of and a discussion is probably necessary. Hell know if you can sell the home without taking a tax hit, and if so, how to minimize it by applying the proceeds to another avenue. Thats his job.
Finally, dont think your planner is going to be on top of everything. The guy will have a lot of clients if he is any good, and he wont know everything that is going on in your accounts every day. Its going to be your job to keep track of certain things and get back to him about them. Never stray too far away from your own records and ask the right questions when they arise. Remember, its YOUR money, not his. If you have a gut feeling that you are doing something wrong, tell him about it, tell him why you think its flawed and come up with something that satisfies both of you.
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